Admission of a Partner

→When a New Partner is admitted into the firm ,it is known as Admission of a New Partner.

→There are same common problems:

1)Calculations of profit sharing ratio & sacrificing ratio

2)Treatment of goodwill

3)Adjustment for reserve /undistributed profits/Losses

4)Adjustment for Revaluation Profit/Losses

5)Adjustment of Capitals of Partners

→Calculations of profit sharing ratio & sacrificing ratio

Case.1.When only New Partner’s Share is Given.

Case.2.When New Partner takes /acquires/gets/purchases.

Case.3.When old partner surrender /sacrifice /give/contribute.

*Calculations of sacrificing Ratio:

In Case.1.Sacrificing Ratio=Old Ratio

In Case.2.Sacrificing Ratio=Acquired Ratio

In Case.3.Sacrificing Ratio=Old Ratio X Surrender Ratio/ Old share – New share

→Treatment Of Goodwill:

1)Old value /Already existing value--------It will be written off.

Entry: Old Partner’s Cap.a/c Dr.

                        To Goodwill a/c Cr.

2)Goodwill Valued / Given in Adjustment----------By Premium Method : 

When New Partner brings his share of Goodwill /Premium in cash.

Case.1.Give the brought amount to the old partners privately.[No entry passed for goodwill]

Case.2.He/She retains /remains/invests this amount into the firm.

1.Cash a/c Dr.                                                                         2. Premium for Goodwill a/c Dr.

            To Premium a/c Cr.                                                                To A’s cap. a/c 

            To C’s  cap.a/c Cr.                                                                   To B’s cap.a/c

[being amt.brought by incoming partner]                              [being distribution of premium for G/W in S/R]

Case.3.He/she retains the amt.into business and this amt.is withdrawn by old partners either wholly or Partially.                                        Entry 1&2.are same as above

3.old/sacrificing partner’s cap.a/c Dr.

                        To cash/Bank a/c Cr.{In sacrificing ratio}

Case.4.When New Partner is unable to bring his share of G/W in Cash.

                        New Partners/Gaining Partner’s cap.a/c Dr.

                                    To Old Partner’s/sacrificing Partner’s cap.a/c Cr.{ In sacrificing Ratio}

Hidden / Inferred Goodwill: If Goodwill is not given in the question then it will be calculated .

Hidden Goodwill (Of the firm )=Total capital of the new firm –Combined capital of all partners(including new)

Total capital of the new firm =New partner’s capital X His share Reciprocal

Combined capitals of all partner’s = Sum of the capitals of all the partners + undistributed profits/reserves – undistributed losses + revaluation profit - revaluation loss

Entry: New partner’s cap./current a/c Dr.

                        To Old Partner’s cap.a/c Cr.{ In sacrificing ratio}

                                     Revaluation of Assets & Liabilities 

·        To/at/upto: Difference in revaluation a/c

·        By: Complete value in revaluation a/c

·        Reserve/goodwill/undistributed losses will not be shown in revaluation a/c.

Form of Partner’s Cap.a/c

Balance sheet(New/Revised)

Adjustment of Capital:

Case.1.when New partner’s cap.is given and cap. Accounts of other partners will be re-adjusted in new ratio.

Case.2.When New Partner’s Capital is not given and he will bring his capital on the basis of combined capitals of old partners.

Case.3.New Partner’s Cap. Is also not given in this case,it will be calculated on total capital.